Ending a three-day, 40-cent price advance, natural gas futures sifted lower Tuesday, as trade selling overpowered fund short covering. Negating Monday’s advance with a 12.6-cent decline, the November contract fell throughout the session to close even with Friday’s $2.681 settle.

Yesterday’s session had a little something for everyone. In addition to the not-so-shabby decline, bears were pleased the November contract broke to a new low for the week at $2.63. Bulls on the other hand, were impressed that the prompt month was able to notch a fresh one-month high for the second day in a row. Also of solace for bulls Tuesday was the fact that the November contract managed to remain above its 40-day moving average. At $2.547, November’s 40-day moving average is being closely watched by technical traders because it lies just beneath the prevailing November price. A break lower by the prompt month could signal another leg to the downside. However, the longer the November contract remains above its 40-day moving average, the harder it will be to pressure it lower, technicians agree.

However, Jay Levine of Advest Inc. is not convinced the 40-day average will provide much support for prices this time around. Instead, he points to a downsloping channel, which has confined the market’s movements since early this year, as a potential wet blanket on the futures market. “For the time being, the top of that downtrend channel at $2.90 has held beautifully, and I have no reason to bet against it going forward. Because we are still near the top of the channel, I would still view this as a selling opportunity.”

Also of potential bearishness, continued Levine, is the American Gas Association storage report to be released this afternoon. “The market is anticipating an injection in the 40-50 Bcf range, and if it is above 50 Bcf, we could see another nice sell-off,” Last year at this time the market injected a whopping 71 Bcf, which is unlikely this year considering storage is already 92 percent full. The five-year average injection is 52 Bcf.

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